The European Commission has adopted a proposal on financial market infrastructure that aims to manage the risk of one or more parties defaulting on transactions, in an attempt to learn from lessons provided by the global financial crisis. EurActiv’s partner Milano Finanza reports.
The EU executive has drawn up new rules on central counterparties (CCPs) that will bring together sellers and buyers, in such a way that risk will be managed closer than before and financial stability will be promoted, in the event that counterparties are not able to meet their financial obligations.
Euro and Social Dialogue Commissioner Valdis Dombrovskis said that “this proposal will strengthen Europe’s financial system further and aims at protecting taxpayers by ensuring we can deal with a central counterparty if it falls into difficulty”.
The European Union and the United States agreed yesterday (10 February) to accept each other’s derivatives rules in a long-awaited step to avoid splitting the $550 trillion market.
There are currently 17 CCPs across Europe, which are interconnected to all financial institutions active on the markets and which clear a significant proportion of all outstanding derivatives: roughly €500 trillion.
Their importance will only increase once G20 rules agreed in 2009 on clearing over-the-counter (OTC) derivatives through CCPs are fully implemented. In 2015, more than 50% of OTC derivatives were, on average, centrally cleared through CCPs.
Today’s (28 November) proposal hopes to eliminate or at least mitigate any problems that would emerge if a major financial institution, closely connected to others, happened to fail.
Financial services giant Morgan Stanley has released a report on how best to protect portfolios, ahead of Italy’s crucial referendum and upcoming European elections. EurActiv’s partner Milano Finanza reports.
In particular, the European Commission’s plan hopes to isolate taxpayers from any costs linked to the restructuring and failing of CCPs, as well as avoiding any loss of value.
Although CCPs are well regulated under the European Market Infrastructure Regulation (EMIR), the proposal is the Commission’s attempt to create a safety net for use if things happen to go wrong.